BHP: A Wolf in Sheep's Clothing?

Why would BHP’s CEO Marius Klopper's call for Australia to unilaterally lead the world in taxing carbon?

Mark Taylor 18 October, 2010 | 10:44AM
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Why would BHP (BLT) CEO Marius Kloppers express support for a carbon tax? The mining industry has its fair share of climate sceptics. Geologists and model-based climatologists have very different views of the world. Does BHP stand to gain or lose from a carbon tax? Marius Kloppers himself has circa two million shares at stake. This excludes future grants as part of his remuneration package.

BHP is a diversified company, a structure designed to smooth volatile commodity earnings streams. This strength was demonstrated in the recent global downturn--weaker aluminium and copper prices were offset by rampaging iron ore and metallurgical coal prices. It is likely that this diversification could again prove at the very least a partial hedge against a carbon tax. It is a feature many competitors don't enjoy.

Carbon-heavy energy coal is not a major component of BHP's earnings stream. Base metals, already tight, might benefit from the necessary electrification associated with growth in renewable energy sources. BHP has substantial gas interests, a potential winner versus other more carbon-intensive hydrocarbons. The company's oil interests sheltered it from the impost of sky-rocketing oil prices on other divisions in 2008. Growth in worth of gas assets might achieve some of the same under a carbon tax.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC1,867.80 GBX-1.27Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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